What Is a Credit Crisis?

A credit crisis is when banks and suppliers feel they are going to have a hard time getting paid back on loans, so they stop lending money to people. Find out why banks need to keep cash to meet capital requirements with information from a financial adviser in this free video on credit and lending crises.

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Video Transcript

Have you been reading in the newspapers recently, about the credit crisis? Hi, this is Roger Groh, at Groh Asset Management. A credit crisis is really a lack of places to borrow money. Why? Well generally, they, the banks or the suppliers, feel that they're going to be having a hard time getting paid back, so rather than risk it, they just cut everybody off. One of the big differences between today, and previous credit crisis's, is that it's worldwide, and it's tough to borrow anywhere in the world today. Why are the banks reluctant to lend? Well, clearly, they're afraid they're not going to get paid back. Why? They've been burned pretty badly in housing, over the last couple of years. Much less credit cards, auto loans, you name it. Pick up your paper, you can read the laundry list. It is ugly. Things have changed a little bit in early 2009 though, and there seems to be some thawing going on, with the very well heeled, and the people with the highest credit scores, now being able to borrow. If you're a little bit down in tier or in quality, you're still going to have a tough time. What are the prospects for the rest of 2009? Probably, it will get better. The banks have needed to keep all of their cash, for capital requirements. Once housing prices bottom, expect interest rates from the banks to drop significantly, and expect lending then to pick up steam again. I'm Roger Groh, with Groh Asset Management. Thank you very much for spending time with me.